In the past two decades the economy was sparked by consumers who spent far more than their income by running up record debts and converting house price appreciation into cash. Those days are over.

By Comstock Partners at Business Insider

EXCERPTS:

In our view it’s the economic recovery that is temporary while the deceleration of growth is real.

There are a number of reasons to believe that the economic recovery itself has been temporary. The economy has been highly reliant on government stimulation, both fiscal and monetary. Not only is the fiscal stimulation now petering out, but as the acrimonious discussions in Washington indicate, fiscal policy is highly likely to become more restrictive from here on.

It was only with the announcement of QE2 that the market began to recover strongly and the economy perked up, although not by much. It is notable that with all of the massive stimulation, the economic recovery has been by far the weakest in the post-World War ll period.

We also point out that the economy has been kept afloat by artificially low interest rates, and that the Fed still believes the economy is still so fragile that it is keeping rates low for an indefinite period. Additional major headwinds to economic growth are the moribund housing market, continued unresolved problems in commercial real estate and the desperate plight of state and local budgets.

In addition we question where this assumed resumption of growth is going to come from. In the past two decades the economy was sparked by consumers who spent far more than their income by running up record debts and converting house price appreciation into cash. Those days are over. If anything, consumers have to pare down debt as does the federal government. We see no other segment of the economy that can pick up the slack.

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